Crunch the numbers before you buy those heifers

Crunch the numbers before you buy those heifers

Carefully analyze the cost of buying, selling and retaining replacement heifers.

“The days of developing heifers from calves to breds for $300 are gone. But, so are $500 heifer calves in the fall. Is it worth it to develop and retain your own heifers? Can you afford not to?”

That’s the question John Ritten, University of Wyoming associate ag professor, asks of producers. Ritten thinks the fundamentals are in place for a strong market at least through 2015, and encourages producers who are trying to decide whether to keep their own replacement heifers this fall, or buy new genetics, to make an economic comparison to see how market swings and ever-changing input prices affect the value of bred heifers.

By the numbers

“You still start with a weaned heifer calf, which used to be worth $550 in October. Then, in the fall of 2013, we saw the average heifer calf price in Wyoming go to $900, which was a bargain compared to the 2014 price average of $1,520,” says Ritten. By July 2015, those prices hovered around $1,800, he says.

That initial cost must be associated with heifer calves being developed, whether or not they were purchased or raised, because it provides a necessary starting value.

“We are going to assume we weaned or purchased heifers on Oct. 15, turned them out on grass, then began feeding on Dec. 1. We will breed them on May 15, and either turn them back out to pasture or sell in July,” says Ritten, paralleling a typical development timeline in the Northern Plains.

His assumptions result in 45 days on forage, or an equivalent of 15 pounds of hay per head per day. “Then we will put them on full feed for 165 days, with a ration consisting of 15 pounds of grass-alfalfa-mix hay and 4 pounds of protein per day. I’m going to spend $110 per ton on hay, and $320 per ton on protein. If I calculate that all out based on those parameters, I will have $363.58 per head in feed costs from October through July 1,” says Ritten.

In the spring, the decision of whether to AI or bull-breed the heifers will also provide some differences in development costs.

“If I AI, experts tell me I can count on a 65% conception rate. If I throw a bull in, it will be closer to a 90% conception rate. Either way, we have costs and open heifers,” says Ritten.

If AI-ing, Ritten calculates cost per head to be around $80, which includes any drugs used, semen purchased and hiring an AI tech.

“But what does a heifer bull cost? I am going to assume he costs me $4,000, that he breeds 25 head a year, and that I sell him for $1,800 after two years of service because he got too big to breed heifers. That comes to a $72 cost per head. If I pay $6,000 for him, that price goes up to $112 per head,” explains Ritten.

Lastly, to truly realize all costs involved in heifer development, Ritten encourages producers to consider charging themselves a fair interest rate during the time of developing heifers, and take into consideration labor, yardage and additional vet costs and supplies.

“Then there are the open heifers. They still have value, but not nearly as much as if they’re bred.”

Profit potential

In the end, is developing those heifers a profitable endeavor?

“That all depends on the scenario used. If I had 100 heifers worth $1,520 last October, fed them hay for 165 days, bred with a bull, kicked them out on grass with some protein and saw a 90% breed-up and a 1% death loss, I will have 99 alive, and each one will cost me $2,064.94 by July.”

If the feeding scenario stays the same, but heifers are AI-bred with a 65% conception rate, then cleaned up with a $6,000 bull for a total conception rate of 80%, and yardage is added at 30 cents per head per day, development costs jump to $2,211.98 per head.

“First, that startup cost is a huge expense right now. Plus, that total does not including all additional costs you should consider, or fixed costs. Regardless, it’s obvious there is a lot of money tied up in that female for seven to eight months,” explains Ritten. “This also doesn’t assume it was a bad winter, in which case your feed costs could easily double if you’re in the northern U.S.”

So, will it pencil? According to Ritten’s figures and market averages, if bred heifers developed through these scenarios are worth $2,500 per head, and 90% are bred, the average return per heifer exposed is around $2,441, when taking into account the open heifers. If conception is 80% (for example, after AI and turning out a cleanup bull), the average return of each exposed heifer drops to around $2,384 per head.

In comparison, if bred heifers are worth $3,000 and 90% were bred, gross return will be $2,892 per head, or $2,784 per head if 80% conceived.

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“Ignoring labor, management and fixed costs, that results in a profit per head of $242 if 90% are bred and they bring $2,500, or $184 profit per head if 80% are bred. Any value less than $2,200 per head and we start to lose money. At $1,800 per head, we are seeing a loss of more than $350 per head,” says Ritten. “2014 is the first time in a decade heifers that developed in a scenario similar to what I demonstrated would have made money in the open market, and developing them with intent to sell would have been a profitable proposition.”

What really pays?

“Right now, it’s expensive whether you buy or keep heifers. It costs the same amount of money, if not more, to develop and then maintain an average female vs. an exceptional female. Why would I spend the same amount of money and effort to put a female in my herd that has a much higher chance of being average or below-average due to unknowns, over keeping a home-raised individual whom I have carefully bred and raised to thrive in my environment?” asks western South Dakota rancher Sandy Hanson, of why he believes it pays in dividends to raise his own replacement females.

The results for Hanson have been positive. In 2014, more than 90% of his steers sold in a single front-end lot, whether they were out of 2-year-old heifers or aged cows in their last year of production.

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“That’s what pays for me to keep my own heifers — it’s not so much a difference in the cost of developing her, it’s that real value of making an additional $50 to $100 per calf over her lifetime, and having that lifetime last a decade. That’s real money I am able to capture through my breeding and selection process,” he says.

Wade Moser has developed and sold bred heifers for 30 years in the Bismarck, N.D., area. He says people are always jumping in and out of the heifer market, depending on the year, but that many cowmen in his area have transitioned from raising to buying their replacement females over the last decade.

“I see more people wanting to buy their replacements, so they can turn every cow out on grass with a calf at her side and not worry about finding a heifer bull, using separate pastures, and the other management actions that have to take place when developing heifers that can become a headache,” Moser explains.

Ritten says the current market presents one of the few times when there may not be a wrong answer from a financial perspective. But, he still encourages producers to take the time to calculate all costs involved in their heifer development decisions, while also taking into consideration genetics and other variables that do not have a set dollar value.

Heather Maude is a freelance journalist and photographer who farms and ranches with her husband, Charles, in western South Dakota.

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